Trade is one of the first casualties of a global economic crisis. We saw this happen during the Great Depression, after the oil shocks of the 1970s, in the early 1980s, and now the first contraction in global trade since 1982. A reformed and robust trade monitoring system should be among the top priorities for world leaders meeting in London in April and beyond. Many argue that the priority for governments should be to ‘fix’ the crisis first; reforming the governance of the global trade (and financial) system could come later. That would indeed be a mistaken strategy and a lost opportunity. It would be mistaken because better trade monitoring could determine the difference between a coordinated response and a deepening crisis. It would be a lost opportunity for reform because the current crisis sharply exposes the deficiencies in trade governance, which if tolerated any longer would only serve to delegitimise a rule-based trade system.
Recent economic stimulus packages, ‘buy local’ clauses, potential labour restrictions and subsidies to specific industries have led to growing calls from academics and policymakers for strengthened monitoring. In calling for more vigilance, the World Trade Organization (WTO) Secretariat has already taken steps to increase monitoring of trade policy developments during the crisis, including periodic reports on new trade barriers (the first was published in January though its contents were nominally restricted).
But such strengthened monitoring cannot stop with the end of the present crisis, as is currently intended. Nor can it be effective without proper diagnosis of the problems facing the WTO’s monitoring system.
There are four main problems. First, delays in reporting and notifications reduce transparency, undermine the predictability of international commitments, and add to fears that information is being deliberately withheld. Trade policy reviews (TPRs) are comprehensive documents when it comes to describing members’ policies, but they have often failed to identify, analyse and warn about contentious policies in advance of disputes. Secondly, there is little analysis of the adverse impacts of members’ trade policies on other members. Some of the larger developing countries have sought to build analytical capacity at home but are forced to make trade-offs about which issues they can analyse; for poorer countries, the situation is worse. Thirdly, in the absence of a direct link between monitoring and enforcement, transparency mechanisms have developed little teeth in the international trade regime. Meanwhile, an analysis of review meetings shows that much of the ‘peer pressure’ is directed from developed towards developing countries, thereby reducing the confidence of poor countries in multilateral surveillance. Fourthly, domestic capacity for monitoring has received little attention. WTO country missions aim to help countries collect data on their own sectoral policies and barriers, but are understaffed compared to other organizations. More importantly, the focus on monitoring external (larger) trade partners is entirely absent.
The global economic crisis presents an opportunity for the WTO (its members and the Secretariat) to push its mandate for multilateral surveillance to the limit. In so doing, reforms would have to focus on three sets of priorities.
RELEVANT CONTENT FOR MEMBER STATES
First, WTO monitoring mechanisms have to be geared towards advance warning of policy changes. Developing countries, with little domestic monitoring capacities, now demand advance warning in order to protect their export interests from sudden shocks. The need for early warning was noted in the case of financial surveillance after the 1997-98 crises. A revamped Trade Policy Review Body could issue such warnings, but members can also choose to discuss in issue-specific committees. Voluntary provisions in new monitoring mechanisms, such as for SPS measures and regional trade agreements, could be changed into compulsory obligations.
Reviews should also analyse the systemic impact of policies in major trading countries, developed and large developing ones. Assigning desk officers who would engage in regular research (not just at the time of TPRs) would be a step towards building such capacity. Similarly, analysing the systemic impact of the regime’s rules warrants a closer working relationship between individual committees, the TPR Division and the Economic Research and Statistics Division. It also means greater coordination between the WTO and the IMF/World Bank for building tariff and related databases, evaluation of macroeconomic conditions, impact analyses of trade negotiations, and linkages between technical assistance needs and development assistance.
ALTERNATIVE SOURCES OF INFORMATION
Although many agencies and actors research trade policies, their efforts are not always coordinated to facilitate timely information. In response, domestic transparency and monitoring has to improve, with particular emphasis on the processes of consultation and coordination. Brazil, Chile, China, India, Hong Kong and Korea are among the developing countries that already have wide-ranging consultation processes, albeit to varying degrees of success. National trade policy forums could draw in legislators, business groups and NGOs in periodic dialogues on trade policy and get inputs from multiple sources about regulatory changes abroad. Long gaps between multilateral reviews often result in forgotten policy lessons. Interim national reviews could take stock of changes and improvements in policies.
The trade system needs a structured role for non-state actors in monitoring. Their capacity for information collection and analysis varies greatly across countries. Capacity building efforts that focus on explaining WTO rules to domestic actors would need to be supplemented with measures to improve their policy review and monitoring capabilities as well. Even if governments dispute information from different sources (as in the International Labour Organization or human rights regimes), they would be forced to submit updated official information, thereby reducing transparency gaps.
Using expert discussants during reviews (as occurs in the climate regime) would be another way to raise the level of debate in trade reviews. To date, the majority of discussants for TPRs have come from developed countries. A more balanced representation, including of external experts, would lend more credibility to policy reviews.
Resource-constrained countries could also gain from better regional surveillance. The aid-for-trade review process has already incorporated this dimension. Regional peer review could increase the availability of timely data, discussion on the appropriate models and frameworks for analysis, and generate more options for policy implementation.
MORE EFFECTIVE FORUMS FOR PEER PRESSURE
Members should target each others’ reporting behaviour. Failure to report on changes in policies should attract more explicit criticism in WTO committees as well as during TPRs. A recent discussion in the Committee on Agriculture on the notification process occurred after ten years. This pattern needs to change. Members worry that policy reviews could lead to sanctioning non-compliance. An alternative is to sanction non-reporting and increase pressure for submitting timely information.
Members and the WTO Secretariat have to greatly increase the dissemination and visibility of reports. Options include more media coverage of reviews, permitting non-state actors to participate as observers, and greater use of cross-country databases (as has occurred for RTAs and SPS measures).
Finally, procedures are needed to follow-up after reviews. For poorer countries, this would include more structured links with the Integrated Framework and with wider aid-for-trade efforts. For larger trading powers, this implies linking policy reviews to structured consultations and the use of the Chair’s ‘good offices’ to debate and resolve contentious policies before they reach the stage of formal dispute.
Effective monitoring is a necessary condition for international cooperation. No country, however powerful, has the capacity to monitor policy developments everywhere, more so during an economic crisis. Some of the reforms outlined above are longer-term. But the G20 leaders can start the dialogue by supporting a stronger WTO mandate for surveillance with commensurate increase in resources and capacity. They must remember that trust in multilateral monitoring would increase only when it shines the light on issues that matter to the poorest countries and is seen to have an impact.
Dr. Arunabha Ghosh is an Oxford-Princeton Global Leaders Fellow, currently based at the Global Economic Governance Programme, Oxford. His doctoral research was on the WTO’s monitoring system, particularly the Trade Policy Review Mechanism.
This article is part of a forthcoming compilation on a trade agenda for G20 leaders edited jointly by Dr. Carolyn Deere Birkbeck (Global Economic Governance Programme) and Ricardo Meléndez-Ortiz (International Centre on Trade and Sustainable Development (ICTSD)). The compilation will be published in mid-March 2009.
